The crowded CRM space suddenly turned into a log jam after Microsoft Corp. officially disclosed that it will deliver a CRM product for the small-to-midsize business (SMB) market. The news sent CRM vendors scrambling to tell the world that they are not the ones in the direct path of the Redmond, Wash., software giant, or that they have a huge head start.

Microsoft CRM is being built on the newly unveiled Visual studio .Net development platform. Users can access the software through Microsoft Outlook or the Web, and hook into Microsoft's Office suite and SQL server. Microsoft CRM is expected to ship later this year; pricing wasn't disclosed.

Microsoft will pitch its bCentral lead management service and other CRM-related products to companies with fewer than 25 employees. Microsoft CRM will be sold to companies with 25 to a few hundred employees. A cobranded solution, based on Siebel System's mid-market enterprise edition, will target companies with 500-plus employees. Finally, Microsoft is partnering with CRM vendors such as Onyx Software Corp., Pivotal Corp., and SAP AG, to create solutions for enterprise customers.

In a nutshell, Microsoft's new initiative is a play toward the lower end of the CRM market, which is lacking in CRM products, says Bo Manning, chief executive of Pivotal Software. "It's a natural move for Microsoft and certainly one it has been thinking about for the past 12 to 18 months. We are not in that market or anything close to it. But companies like SalesLogix and Front Range Solutions are right in it," he says.

Indeed, there is a lot of opportunity at the lower end of the CRM spectrum, says Sheryl Kingstone, an analyst at Yankee Group. The Aberdeen Group reported 6 million SMB businesses in North America alone, a fraction of which has CRM solutions. And despite a crowded CRM vendor community, "there are a lot of companies out there needing CRM solutions, and not a lot of low-end solutions available," Kingstone says.

Microsoft will distribute its CRM offerings through the Microsoft Great Plains partner channel, which specializes in small to midsize companies. Microsoft CRM will be sold as a standalone application, as a hosted solution from Microsoft's channel partners, or as a preintegrated feature in Microsoft Great Plains' Dynamics, Solomon, and eEnterprise products.

Microsoft's CRM plans sent tremors throughout the CRM landscape. Onyx, for instance, issued a statement that the company does not consider Microsoft CRM threatening to its mid- to high-end market segment. "Microsoft is dipping its toes into the CRM pool, and it would probably take [the company] a few years to move up into our space," Onyx spokesperson Robin Rees says. "Siebel, though, is probably going to suffer a little more," given similar target markets of its mid-market edition.

Microsoft has no intentions of moving upward and going head-to-head with strategic partner and market leader Siebel, counters Holly Holt, senior product manager of CRM at Microsoft. Besides, there's room for everyone in the middle. "The mid-market is underserved," she says. "Only about 10 percent of mid-market customers have a CRM solution."

Certainly, CRM vendors are already staking out market segments separate from Microsoft CRM, which is still vaporware. Wishful thinking? Probably. While Microsoft likely won't compete with high-end vendors in the near term, it is nevertheless daunting to have this kind of heavyweight in the ring. So says Kelly Spang, a senior analyst at researcher Current Analysis. "Would you take Microsoft at its word? I wouldn't," she says. "CRM vendors had better plan for worst-case scenarios."

Industry watchers agree those directly impacted by Microsoft CRM will be mid-market vendors like Front Range Solutions, Interact Commerce Corp., and Multiactive Software. Christopher Fletcher, vice president and research director of CRM at The Aberdeen Group, says these companies will have to look over their shoulders when Microsoft CRM comes to market.

Already, Interact Commerce is gearing up for the battle. Responding to Microsoft's news, Interact Commerce, whose flagship products include ACT! and SalesLogix, claims its customer base of more than 67,000 will help secure its place. "We welcome Microsoft to the space, but we feel we're in a better position to execute," says Kevin Myers, vice president of product and services marketing for SalesLogix.

Overall, Microsoft's strategy is sound, especially when leveraging Microsoft Outlook--a staple among many SMBs--into CRM customer wins. But, like many of the CRM vendors, Yankee Group's Kingstone will wait to see the proof in the pudding, and says Microsoft CRM is still in development with a long way to go.